Cuts to military pay and benefits can't wait, Pentagon tells Congress

Jared Serbu reports.

Pentagon leaders say the reductions to military personnel spending they are proposing as part of
the fiscal
2015 budget weren't easy decisions, but Congress needs to OK them this year, or
the overall military budget picture will become far gloomier over the next five
years.

The Defense Department is taking heat from military associations and Capitol Hill
not just for proposing trims to compensation, but also for the timing of the
proposals. They come one year before the congressionally-chartered Military Compensation and Retirement
Modernization
Commission is scheduled to issue a full package of recommendations to reform
the entire structure of military pay and benefits, including salaries, pensions,
health care and other perks.

But in budget hearings on Capitol Hill Tuesday and Wednesday, Pentagon officials
insisted they've done enough analysis on their own to move forward with a package
of changes that they said must be made immediately, including lower military pay
raises, smaller housing allowances, an end to commissary subsidies and new out-of-
pocket health care costs for military family members and retirees.

"If we wait until we have the commission results, then we're going to have to take
all of this money out of readiness and modernization,"
said outgoing Defense undersecretary Robert Hale, DoD's comptroller and chief
financial officer. "We think that will damage national security, and that's why
we're doing this. We'd rather wait; we'd rather not do this at all. But the budget
caps are in effect and we don't see them changing."

Reductions are 'modest'

The Pentagon's budget does not propose any changes to the current retirement
system. DoD says it wants to wait for the commission's recommendations on that
politically-volatile topic.

Defense officials defended their current personnel proposals this week as being
"modest." The proposals would lower military pay raises to 1 percent per year
instead of keeping pace with private-market wage inflation. Housing allowances
would be changed to cover only 95 percent of the estimated cost of service
members' rent, and the department would no longer pay the costs of renters
insurance.

Also, commissary shoppers would get about a 10 percent discount from private
market prices for groceries, compared to the average 30 percent they enjoy now.
And the TRICARE health insurance system would introduce new fees and co-pays to
try to push beneficiaries to use lower-cost military treatment facilities and
pharmacies.

If Congress enacts those and other personnel changes into law, DoD estimates it
would save about $2 billion in 2015.

Sen. Lindsey Graham (R-S.C.) is one of the few lawmakers who routinely and
publicly agrees with the Pentagon's assessment that the military personnel budget
is in need of serious structural reform. But even he was unwilling to embrace the
department's proposals Wednesday.

"Could we find $2 billion [in the federal budget] this year that would avoid us
having to make structural decisions about commissaries, about TRICARE and other
things about compensation? I'll probably support these things in the end, I'd just
like the commission to do it," he said. "It's not that I don't trust the
department's work product, but we've got ourselves in a bind here. You've got a
commission studying the same subject matter. You've got an administration that's
got to come up with money within the budget caps. If we could find a $2 billion
safety valve, I think we could allow the commission to do its work. If you're
going to ask people to give up some of their housing allowances, I'd just like to
make it a more thoughtful process and be able to go to these folks and say, 'We've
had the best minds in the country looking at this.' I just think it be easier for
us to sell."

No easy choices

DoD says it's not just a $2 billion problem. The Pentagon estimates the changes it
wants to begin making next year would carry compounding savings that would accrue
to the tune of $31 billion over the next five years.

And Hale said even delaying the changes by a year or two would throw DoD's
already-tenuous budget plans way out of balance.

"If you delay all of these, the whole budget slips," Hale said. "You would have to
wait probably two years before you could act on the commission's recommendations,
so it's probably another $15 billion or so in that period. I don't have the exact
number, but what you're doing is forcing further cuts in numbers of personnel or
modernization in the out years."